August 10, 2015 | By

Just a Flesh Wound?

Top trade officials wear flower leis as they line up for a photo in Maui, Hawaii, during TPP talks in July. REUTERS/Marco Garcia

At the end of July, negotiators for the 12 Trans-Pacific Partnership (TPP) countries gathered in Maui for a ministerial meeting to conclude the trade agreement. The attempt failed. Negotiators left admitting that they were short of a deal, but praising themselves for progress made. (They always do that, unless things are really horrible, in which case they talk about “frank and constructive discussions.”) The question is whether the failure in Maui was just a flesh wound, or was something more serious.

A week ago, I wrote that time may have run out on the Obama trade agenda. Others were less pessimistic. The Wall Street Journal has an editorial today which concludes that “The US political calendar to approve the deal is shortening as an election year approaches, but it’s important to get the deal right.” Jeff Schott, a savvy trade scholar at the Peterson Institute, argues that there is opportunity for a deal in the next month or two. Daniel Pearson at Cato writes that Maui was a good start. They all seem to believe there is time left on the clock.

The difficulty is that, in these trade negotiations, we cannot actually see a clock. Technically, the only legal deadline for reaching a deal (the expiration of the recently-passed US Trade Promotion Authority, TPA) is far off in the future. The real obstacles are practical ones. There are two main hurdles:
  1. How will trade politics mix with electoral politics?
  2. Can there be a lengthy gap between agreement and passage?
 
On the first, we are already in the midst of the Canadian election campaign, culminating in an October 19 vote. The United States has its election in November 2016 of course. And Japan has elections next summer. This is not meant as an exhaustive list, just the ones most likely to cause trouble for trade. Canadian dairy issues may make progress before October difficult. For Japan, sensitive agricultural issues grow ever more sensitive. In the United States, TPA mandates a lengthy lag between agreement and signing, with another lag between signing and passage.

The optimists are all aware of this, but came out of Maui hinting the agreement might be concluded shortly, perhaps even later this month. Then, last week, Assistant Trade Representative Barbara Weisel suggested to congressional staff that an August ministerial meeting was unlikely.

In the United States, optimists understand the difficulty of pushing a trade agreement through Congress in the heat of an election season, so they float ideas about reaching an agreement soon, then passing it in the “lame duck” period after the November 2016 election. The second hurdle concerns this scenario.

As with any trade negotiation, TPP partner countries are being asked to make politically sensitive concessions. The standard tradeoff is that those concessions are offset by new market access commitments that the governments can show off to their voters. If there is a long gap between the sensitive concessions and the market-access rewards, it poses a political problem. That’s what would happen if a fall 2015 agreement were paired with end-2016 passage. And for anyone who cares to look, there is a disturbing precedent. When President Obama was elected, there were three completed US free trade agreements (Colombia, Korea, Panama). Pro-trade Democrats suggested they might be passed in the lame duck in 2008. As it happened, they didn’t move until Fall 2011.

Trade optimists say this time is different. They note that we currently have a pro-trade, Republican-led congress, as opposed to the Democratic majorities that prevailed in 2008 (both then-Speaker Nancy Pelosi and then-Majority Leader Harry Reid have been persistently critical of trade agreements). Optimists take this as reassurance that a TPP deal could pass at the end of next year (the President would want it as a legacy achievement and optimists presume that the same coalition that passed TPA would vote in favor of TPP, no matter what happens in the election).

Perhaps so. Perhaps our TPP partners will be willing to ignore electoral pressures, will have faith in the Obama administration’s ability to manage Congress, will overcome inhibitions and sign soon, and will endure the long wait for US passage. That’s really what constitutes the optimistic scenario (or the only consistent one I’ve heard). It increasingly looks to be a long shot. If any of these conditions are not met, we could find partners waiting to deal with President Obama’s successor. In that case, the failure at Maui was more than just a flesh wound.

About

Phil Levy is senior fellow on the global economy at The Chicago Council on Global Affairs. Previously he was associate professor of business administration at the University of Virginia’s Darden School of Business. He was formerly a resident scholar at the American Enterprise Institute and taught at Columbia University’s School of International and Public Affairs. From 2003 to 2006, he served first as senior economist for trade for President Bush’s Council of Economic Advisers and then as a member of Secretary of State Rice’s Policy Planning Staff, covering international economic matters. Before working in government, he was a faculty member of Yale University’s Department of Economics for nine years and spent one of those as academic director of Yale’s Center for the Study of Globalization.

His academic writings have appeared in such outlets as The American Economic ReviewEconomic Journal, and theJournal of International Economics. He is a regular contributor to Foreign Policy magazine’s online Shadow Government section and writes on topics including trade policy, economic relations with China, and the European economic crisis. Dr. Levy has testified before the House Committee on Foreign Affairs, the Joint Economic Committee, the House Committee on Ways and Mean, and the US-China Economic and Security Review Commission. He received his PhD in Economics from Stanford University in 1994 and his AB in Economics from the University of Michigan in Ann Arbor in 1988.

Archive












| By Alexander Hitch

Don’t Blame Trade: Low-Skilled Job Losses Will Not Be Solved by Protectionism

The clarion call of the disaffected, low-skilled worker became the soundtrack of the 2016 election. Indeed, President Trump claimed the presidency in no small part by promising to reverse the effects of globalization, railing incessantly against the US’s “horrible” trade deals. It does beg the question, though: Why didn’t anyone consider helping those alienated before? In fact, they did.


An Economist Answers the Strong Dollar Call

Mr. President! So glad you called. No, it’s not too early; I was up anyway. You wanted to know whether a strong dollar or a weak dollar is good for the economy. Excellent question.


| By Brian Hanson

Border Tax Adjustment - Explained

What is a border tax adjustment, why is this national tax policy relevant to the global economy, and what headwinds does the proposed policy face from World Trade Organization and the US executive branch?